A blog about economics, finance, business and corporate governance. My background is in economics, with degrees from Columbia and Johns Hopkins. A career in international development, equity capital markets and as a corporate finance chief and board member lead me to think about events in a different way--hence the blog's name.

Thursday, April 25, 2013

Supervalu's Fourth Quarter: Management Gets Down to Basics

Nothing in the most recent fourth quarter results for Supervalu changes the assessment in my January post. The new CEO and senior management team are getting down to the basics of running a pretty simple business model.

CEO Sam Duncan reported on holding a town hall meeting with 200 Save-A-Lot licensees in St. Louis, the city where Bill Moran founded the chain. The licensee group collectively own 400 stores, or about 43% of the total licensed stores. Licensed Save-A-Lots account for about 70% of the chain's 1,331 stores.

What's extraordinary about this meeting is what CEO Duncan was told by the licensee group: "..we (Supervalu) had largely lost our way and were no longer true to what the hard discount format should be." The Star Tribune reports that management was told the chain's costs had gotten out of line.

The entire business model for this format is based on an obsessive focus on costs from real estate to assortment to payments. What were the previous managements doing all these years to have this message delivered now? How could Save-A-Lot have been endlessly touted as the future of Supervalu retail growth when either the licensee group or the corporate group, or both, were failing to run the stores properly?

CEO Duncan also announced the formation of a national retail advisory council of independent customers to give ideas and feedback. This is cited as an "exciting first for Supervalu." What were the previous management teams and board doing?

Imagine McDonald's having no contact with its franchisees? Most of their menu innovations came from their franchisees. Surely, the folks on the ground know their businesses better than the folks at corporate. Things surely have to get better with better connections to the customers.

Decentralization of advertising and assortments is going to be challenging for a company that has been run in a completely different way. The IT bugaboo will also be interesting. All told, it was an encouraging quarter, with a turnaround built on basics, much as Best Buy's "Renew Blue."